Su b - t o p i c SL/HL core HL Markets The nature of markets •Outline the meaning of the term market. Demand The law of demand •Explain the negative causal relationship between price and quantity demanded. •Describe the relationship between an individual consumer's demand and market demand. The demand curve •Explain that a demand curve represents the relationship between the price and the quantity demanded of a product, ceteris paribus. •Draw a demand curve. The non-price •Explain how factors including determinants of changes in income (in the demand (factors that cases of normal and inferior change demand or shift goods), preferences, prices of the demand curve) related goods (in the cases of substitutes and complements) and demographic changes may change demand. Movements along and •Distinguish between shifts of the demand movements along the demand curve curve and shifts of the demand curve. •Draw diagrams to show the difference between movements along the demand curve and shifts of the demand curve. 16 Economics guide
Syllabus content Su b - t o p i c SL/HL core HL Linear demand •Explain a demand function functions (equations), (equation) of the form demand schedules and Qd = a - bP. graphs •Plot a demand curve from a linear function (eg. Qd = 60 - 5P). •Identify the slope of the demand curve as the slope of the demand function Qd = a - bP, that is -b (the coefficient of P). •Outline why, if the "a" term changes, there will be a shift of the demand curve. •Outline how a change in "b" affects the steepness of the demand curve. Supply The law of supply •Explain the positive causal relationship between price and quantity supplied. •Describe the relationship between an individual producer's supply and market supply. The supply curve •Explain that a supply curve represents the relationship between the price and the quantity supplied of a product, ceteris paribus. •Draw a supply curve. The non-price •Explain how factors including determinants of supply changes in costs of factors (factors that change of production (land, labour, supply or shift the capital and entrepreneurship), supply curve) technology, prices of related goods (joint/competitive supply), expectations, indirect taxes and subsidies and the number of firms in the market can change supply. Economics guide 17
Syllabus content Su b - t o p i c SL/HL core HL Movements along and •Distinguish between shifts of the supply movements along the supply curve curve and shifts of the supply curve. •Construct diagrams to show the difference between movements along the supply curve and shifts of the supply curve. Linear supply functions, •Explain a supply function equations and graphs (equation) of the form Qs = c + dP. •Plot a supply curve from a linear function (eg, Qs = -30 + 20 P). •Identify the slope of the supply curve as the slope of the supply function Qs = c + dP, that is d (the coefficient of P). •Outline why, if the "c" term changes, there will be a shift of the supply curve. •Outline how a change in "d" affects the steepness of the supply curve. Market equilibrium Equilibrium and •Explain, using diagrams, how changes to equilibrium demand and supply interact to produce market equilibrium. •Analyse, using diagrams and with reference to excess demand or excess supply, how changes in the determinants of demand and/or supply result in a new market equilibrium. Calculating and •Calculate the equilibrium price illustrating equilibrium and equilibrium quantity from using linear equations linear demand and supply functions. •Plot demand and supply curves from linear functions, and identify the equilibrium price and equilibrium quantity. •State the quantity of excess demand or excess supply in the above diagrams. 18 Economics guide
Syllabus content Su b - t o p i c SL/HL core HL The role of the price mechanism Resource allocation •Explain why scarcity necessitates choices that answer the "What to produce?" question. •Explain why choice results in an opportunity cost. •Explain, using diagrams, that price has a signalling function and an incentive function, which result in a reallocation of resources when prices change as a result of a change in demand or supply conditions. Market efficiency Consumer surplus •Explain the concept of consumer surplus. •Identify consumer surplus on a demand and supply diagram. Producer surplus •Explain the concept of producer surplus. •Identify producer surplus on a demand and supply diagram. Allocative efficiency •Explain that the best allocation of resources from society's point of view is at competitive market equilibrium, where social (community) surplus (consumer surplus and producer surplus) is maximized (marginal benefit = marginal cost). Theory of knowledge: potential connections To what extent is it true to say that a demand curve is a fictional entity? What assumptions underlie the law of demand? Are these assumptions likely to be true? Does it matter if these asssumptions are actually false?
Su b - t o p i c SL/HL core HL
Markets
The nature of markets • Outline the meaning of the
term market.
Demand
The law of demand • Explain the negative causal
relationship between price and
quantity demanded.
• Describe the relationship
between an individual
consumer's demand and
market demand.
The demand curve • Explain that a demand curve
represents the relationship
between the price and the
quantity demanded of a
product, ceteris paribus.
• Draw a demand curve.
The non-price • Explain how factors including
determinants of changes in income (in the
demand (factors that cases of normal and inferior
change demand or shift goods), preferences, prices of
the demand curve) related goods (in the cases of
substitutes and complements)
and demographic changes
may change demand.
Movements along and • Distinguish between
shifts of the demand movements along the demand
curve curve and shifts of the demand
curve.
• Draw diagrams to show
the difference between
movements along the demand
curve and shifts of the demand
curve.
16 Economics guide
Su b - t o p i c SL/HL core HL
Linear demand • Explain a demand function
functions (equations), (equation) of the form
demand schedules and Qd = a - bP.
graphs • Plot a demand curve from a
linear function
(eg. Qd = 60 - 5P).
• Identify the slope of the
demand curve as the slope
of the demand function
Qd = a - bP, that is -b
(the coefficient of P).
• Outline why, if the "a" term
changes, there will be a shift of
the demand curve.
• Outline how a change in "b"
affects the steepness of the
demand curve.
Supply
The law of supply • Explain the positive causal
relationship between price and
quantity supplied.
• Describe the relationship
between an individual
producer's supply and market
supply.
The supply curve • Explain that a supply curve
represents the relationship
between the price and the
quantity supplied of a product,
ceteris paribus.
• Draw a supply curve.
The non-price • Explain how factors including
determinants of supply changes in costs of factors
(factors that change of production (land, labour,
supply or shift the capital and entrepreneurship),
supply curve) technology, prices of related
goods (joint/competitive
supply), expectations, indirect
taxes and subsidies and the
number of firms in the market
can change supply.
Economics guide 17
Su b - t o p i c SL/HL core HL
Movements along and • Distinguish between
shifts of the supply movements along the supply
curve curve and shifts of the supply
curve.
• Construct diagrams to show
the difference between
movements along the supply
curve and shifts of the supply
curve.
Linear supply functions, • Explain a supply function
equations and graphs (equation) of the form
Qs = c + dP.
• Plot a supply curve from a
linear function (eg, Qs = -30 +
20 P).
• Identify the slope of the supply
curve as the slope of the
supply function Qs = c + dP,
that is d (the coefficient of P).
• Outline why, if the "c" term
changes, there will be a shift of
the supply curve.
• Outline how a change in "d"
affects the steepness of the
supply curve.
Market equilibrium
Equilibrium and • Explain, using diagrams, how
changes to equilibrium demand and supply interact to
produce market equilibrium.
• Analyse, using diagrams
and with reference to excess
demand or excess supply, how
changes in the determinants of
demand and/or supply result in
a new market equilibrium.
Calculating and • Calculate the equilibrium price
illustrating equilibrium and equilibrium quantity from
using linear equations linear demand and supply
functions.
• Plot demand and supply
curves from linear functions,
and identify the equilibrium
price and equilibrium quantity.
• State the quantity of excess
demand or excess supply in
the above diagrams.
18 Economics guide
Su b - t o p i c SL/HL core HL
The role of the price mechanism
Resource allocation • Explain why scarcity
necessitates choices that
answer the "What to produce?"
question.
• Explain why choice results in
an opportunity cost.
• Explain, using diagrams, that
price has a signalling function
and an incentive function,
which result in a reallocation of
resources when prices change
as a result of a change in
demand or supply conditions.
Market efficiency
Consumer surplus • Explain the concept of
consumer surplus.
• Identify consumer surplus on a
demand and supply diagram.
Producer surplus • Explain the concept of
producer surplus.
• Identify producer surplus on a
demand and supply diagram.
Allocative efficiency • Explain that the best allocation
of resources from society's
point of view is at competitive
market equilibrium, where
social (community) surplus
(consumer surplus and
producer surplus) is maximized
(marginal benefit = marginal
cost).
Theory of knowledge: potential connections
To what extent is it true to say that a demand curve is a fictional entity?
What assumptions underlie the law of demand? Are these assumptions likely to be true? Does it
matter if these asssumptions are actually false?